An Operating Agreement for LLC provides the best defense against personal liability and the best offense against preventing later problems and disputes in a business.
Personal Liability Buttress of Protection
It is well established that a limited liability company provides business owners with personal asset protection. This protection basically prevents an owner from being personally liable for business obligations and liability.
What is a little less known is what is called piercing the LLC veil. This is when a person suing your business tries to get a court of law to set aside the LLC protection and still hold owners liable. One claim that this person can make is that the owners did not actually treat the business entity as one separate from themselves and were really operating in their individual capacities.
The best way to challenge this kind of claim and to preserve LLC protection is by having an official operating agreement for LLC and following the provisions in that agreement as you operating the limited liability company business.
An operating agreement gives the legal entity its own personality and its own set of rules. Once adopted and followed, the owners become independent owners and agents of the separate business entity. This is what is required to ensure they remain personally protected against liability for business debts and obligations.
Keeping Harmony in the Business Family
The second reason to have one is much more important for an LLC that has more than one member. It is well known in legal circles that businesses having more than one owner are at a huge risk of later having to deal with partner disagreements and misunderstandings.
It is just the nature of business and the nature of people. Nothing ever happens exactly as planned and there are always challenges and surprises on the path of entrepreneurship. As time goes by, memories fade and owners may have different interpretations of what may have been agreed upon earlier.
This is why it is so important to have a written document that serves as the official document evidencing the agreements of the owners and the rules for running a business. This serves everyone involved because it reduces the chances of misunderstandings and it provides addresses all the major ownership and operational matters.
You should never settle for anything other than a professional operating agreement for LLC as this document is the fundamental agreement governing the major matters of a business. Consider hiring an attorney for this but if you cannot afford the $800-$1500 in fees that it will cost, then insist on starting off with a professional operating agreement form that has been drafted by experienced LLC professionals.
Don’t risk you liability and chances for lawsuits by using an incomplete or improper operating agreement for LLC.